Gita Gopinath is Professor of Economics at Harvard University. She is a visiting scholar at the Federal Reserve Bank of Boston, a research associate with the National Bureau of Economic Research, and a World Economic Forum Young Global Leader.

Comments

The latest data indicates that banking system already received 11 lac crores, against the 14.1 lac crore believed to be in the hands of people. We have still a month to go for exchange. Is the probability of most talked windfall for RBI in terms non-returned currency looking low?Read more

I live in India and I pay my due taxes regularly. I have no problems with this move. Unaccounted money goes into real estate, gold, luxury goods and money transfer abroad through illegal means. Yes all those who had accumulated a lot of cash are facing problems along with the ordinary people. All the large markets in metropolitan cities do most business in cash, issue no formal bills and generate a lot of black money. Such people need to be dealt with and element of surprise is a must. Hence the preparation was not sufficient. There is no policy that fits all situations. It has to be tailored for specific situation. Read more

Modi just nailed it. Indian people will fear any sort of government legal tender and will turn to gold for hoarding purposes.Modi has lost the confidence of the people, which is cornerstone to any fiat money economy. Except for survival purposes, newly acquired rupees will circulate at great speed as Indians opt to buy gold, as an insurance against next demonetization.Gresham Law revisited by 1.3 bn betrayed human beings.Uprisings in India are slow to grow, but when the tinder is lit, fasten your seat belts. Read more

I guess the level of dollarization of India's economics is high. So people have a large amount of ill-gained gains are hoarding them in dollars. Government just dried up the funds which used in financing current transactions.it's not a smart decision. Read more

A good article. Demonetization has sharply divided public opinion into two camps and both views are so acerbic, that it is difficult to look at pros and cons dispassionately.Firstly Modi's decision is not likely to be an 'off the cuff' one or without probable consequences having been mulled over many times, the detractors' hopes that the cash crunch will get them votes may not hold up as new currency circulation gets under way.Secondly, this could be one of the many prongs (indications already there that Benami real-estate holdings may be the next target with Swiss Bank accounts soon thereafter). Micro-dissecting an initial step would not be a winning poll strategy for opposition parties in the long run.I guess 'concern' for public discomfort or for economic growth is misplaced. No pain No gain. And how do you become a modern society without giving up old regressive habits? Untraceable cash or digital banking? Modi has made a choice for us Indians. Time to stop whining and getting on with it. Read more

If one goes by the unintended consequences of such large scale government action, on of the possible fall outs would be more of the Rs.2000 notes to be hoarded. This would be a double whammy as it would be crippling the money in circulation further. Read more

Very balanced article. Jan Dhan accounts were empty and now they have received cash. Even the maid servants have got accounts in cities and have agreed to accept the cheques. To my surprise one of my relatives wanted to perform a pooja at home. The pundits have agreed for cheque payment.The initial pain would continue till new 500 note becomes available. The rural folks and economies are hit at the moment but this has brought in lot of awareness. In C and D class cities (district and Taluka levels) people have started paying attention to government announcements seriously. The most important revelation to the people is they can live with a little cash and most of the stuff can be handled by plastic or alternate channels.The execution was purposefully done so as to make it look sloppy is my take. Everyday the black money hoarders are kept guessing. Read more

Is this 85% of money in circulation based on the total value of these two denomination combined or the number of notes/bills in circulation? Either way it is unlikely to be correct, if the government's reasoning for this decision is to discover and eliminate black money and/or counterfeit money. The best solution to modernize the global financial systems would be by implementing digital ledgers and eliminate the need and use of cash altogether. Read more

It is hard to believe that the Modi Government would rush into demonetization of 85% of the circulating currency without adequate preparation and groundwork. The move is so Tughlak-like that it would have been comical but for the enormous pain inflicted on the poor and the weak who constitute the majority of India's population. The hit on Indian economy is likely to be so big that it will take a long while to recover. Read more

Modi was badly advised and, typically, has backtracked at least with respect to the agricultural sector which is already under horrendous strain. The bad news is that the way in which he has backtracked favors entrenched cliques in agricultural co-operatives and credit unions while piling on the misery for those not part of such cliques. It is a very serious failure of a political type, opaque to foreign observers, and which raises concerns within his own 'Sangh Parivar' as to the wisdom of his sidelining of their organizational outreach to the agricultural sector.

I don't know if Modi can pull a rabbit out of the hat before the elections to get the farmers back on side. It seems unlikely. Dominant agricultural castes have simply taken too much pain in recent years. I predict a big shift away from the bien pensant consensus over the last two decades which was complacent about growth and imagined that the agricultural sector was more buoyant than it actually is. Modi is very much a product of this consensus. He may well be the first casualty of its irretrievable breakdown in the face of an unprecedented crisis for Indian agriculture. Read more

What else could be a solution to punish existing hoarders. Unlike other situations the were led to recession, here there is large recapitalization of banks which should increase public spending, should reduce lending interest rates which in turn will increase economic activity - both good to gdp/economic growth in the mid to long run. Read more

What else is a better way of penalising the existing hoarders? The gradualist approach could be the second step. Without clearing the scene, we can not build up anything new. There is large recapitalisation of banks, which should help in increased public spending, should lower lending interest rates which in turn will increase economic activity and is good for the medium - long run. Read more

"While tax evaders also store their wealth in non-monetary forms, such as land, art, and jewelry, cash remains a leading vehicle for ill-gotten gains, owing to its inherent liquidity."

Not sure how you can come to this conclusion when recent reports suggest that Indian black money is 90 lakh crores where as total currency in circulation is 15 lakh crores. So how this conclusion? Read more

My hunch is that Modi would again end up surprising the experts working largely in the domain of deliberative realm miss the gut-driven/intuitive decision makers like Modi. Demonetization drive is possibility the first serious attempt at going after the crooks--this will cement Modi's reputation as an insurgent and will end up winning the trust of people as someone who punishes the cheaters. And the unintended consequences--and there will be many--of pushing people to the formal financial sector, though disrupting in the short-run, might finally succeed in putting a huge underground economy in the mainstream--an aspect completely ignored by Prof. Gopinath. Mainstreaming the underground economy will be the best disinfectant for all the ills of the underground economy. Moreover, people who are giving example of cash being a small portion of an economy--thus discounting the effect of demonetization--forgets that cash is like salt in a meal--only a pinch makes all the difference. Read more

The action by the government has been decisive and bold and will go long way in purging Indian economy of the black money. Though the medicine is bitter but it is helpful for the economic health and that's perhaps the reason common man despite hardships has welcomed and is with the government.

Large part of India is un banked. This move by Modi will not only gut Indian economy but will create trust deficit with whole concept of money as we know it. Rural India where wages are paid in hard cash is in distress & whole lots of money changers are fleecing rural folks of their hard earned cash earnings. It appears this move is 'SELF SABOTAGE' both for Modi & BJP!! Read more

Very nice and balanced article. Yes, this was a bold step and with good intentions but clearly lacks planning. The banks still don't have enough cash, Atms are dry even after somany days and the effect on small businesses and unorganised sector is really negative. Read more

I can well imagine, that getting advice from experts would have helped the government. But maybe the matter was too delicate to discuss it broadly beforehand. Maybe rumours and subsequent activites were estimated to be even more harmful. Read more

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